Top Ten Reasons Broadband Internet Is Not a Public Utility

Net neutrality activists succeeded last week in getting the FCC to officially consider ruling that private broadband companies should be price and profit regulated like public utilities in order to ensure maximal net neutrality.

As part of the FCC’s proposed Open Internet rulemaking, America will hear a debate over the next several months about whether the FCC should reclassify broadband as a Title II telephone monopoly service.

To make the issue more understandable to those interested, consider the top ten reasons why broadband should not be considered a natural monopoly warranting public utility regulation of profits, prices, terms and conditions.

Physics: The physics of broadband delivery facilitate competition while the physics of electricity, water and gas delivery facilitate monopoly. Electricity, water and gas can only be delivered in one basic physical manner unique to that service. In contrast, broadband can be delivered electrically over many kinds of metal wires, optically over fiber optic cables, and wirelessly in a wide variety of ways.

Digital: The simple binary ones and zeros of digital computer technology inherently enable many different technologies and physical mediums to interchangeability serve as broadband networks. Electricity, water and gas public utility networks are non-digital and inherently not interchangeable like broadband networks are.

Economics: Public utilities are based on single-use, high-capital-intensity, “natural monopoly” utility economics, where economies of scale and scope preclude the possibility of competitive facilities and services. Being digital, broadband provider facilities inherently have dramatically better economics because of multi-use-facilities, service bundles, rapidly declining digital equipment costs, and lower capital-cost intensity via wireless.

Choice: Public utilities exist for services where consumers have no alternative or choice. However, in broadband Internet access, the vast majority of Americans have a diversity of choices of broadband technologies, providers, services and features; i.e. free WiFi or pay-for-service via cable modem, DSL, fiber, wireless, or satellite. Consumers can also choose between stationary, mobile or hybrid access services and select from a wide variety of speed and price offerings.

Competition: As one of the top-advertised services in America, consumers know they can get broadband from their local cable company, local phone company, four national wireless broadband companies (Verizon, AT&T, Sprint, & T-Mobile), and two national satellite companies.
Private Investment: Private investors have invested $1.2 trillion of long-term risk capital in competitive broadband facilities in the U.S. over the last decade under the assumptions that broadband is a competitive service with growth potential and no prospect of utility regulation. This massive and unparalleled infrastructure investment is incontrovertible economic evidence broadband service is not a “natural monopoly,” or likely to become one.

Change: Public utility services are characterized by standard uniformity and glacial rates of change. In contrast, competitive broadband services are characterized by diversity, differentiation, rapid-change, and continuous innovation.

Speed: Public utilities like electricity, water and gas, are designed to deliver a set and uniform delivery speed to everyone that is never expected to change. Competitive broadband networks are all about constantly improving the speed of delivery and offering the choice of differentiated speeds by price based on consumers’ ever-changing needs, wants and means.

Prioritization: Public electricity, water and gas utilities deliver uniform unchanging service that requires only availability management. In contrast, competitive broadband providers deliver variable, constantly changing service that requires ongoing reasonable network management. Broadband providers must filter unwanted, harmful or illegal traffic like spam, viruses, malware, bot-nets, denial-of-service-attacks, and other intrusions and infections. In addition, reasonable network management is needed to address congestion, and to deliver quality-of-service to ensure different types of traffic enjoy the necessary real-time delivery – no latency, jitter or buffering – and minimal down time or packet loss.

Common Carriage: Utility “common carrier” regulation is an obsolete form of network regulation in the U.S., and the Public Switched Telephone Network (PSTN) is the last common carrier utility regulated network industry. Less than a quarter of Americans still use the PSTN exclusively and it is in the process of being transitioned out of service in the next few years. Congress ended common carrier regulation for railroads in 1976, for trucking and bus lines in 1980, and airlines in 1984.

Broadband networks do not have any of the most relevant characteristics of public utility services.

Any fair and fact-based analysis by the FCC will confirm the statements above, and show that FCC reclassification of broadband as a common carrier-regulated utility is unnecessary, unwarranted, unwise and unfair.

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.

Scott Cleland is a precursor: a proven thought leader with a long track record of industry firsts. Cleland is President of Precursor® LLC, a Fortune 500 research consultancy specializing in the future of Internet competition, property rights, privacy, cyber-security and cyber-ideology; algorithmic markets; and communications competition and de-regulation. Cleland authors the widely-read PrecursorBlog and serves as Chairman of NetCompetition® a pro-competition e-forum supported by broadband interests. A world-leading research authority on Google, Cleland authored the book: Search & Destroy: Why You Can't Trust Google Inc. and is publisher of the watchdog site Google Monitor.
Cleland served as Deputy United States Coordinator for Communications and Information Policy in the George H. W. Bush Administration. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent analyst in his field. Scott Cleland has been profiled in Fortune, National Journal, Barrons, WSJ’s Smart Money, and Investors Business Daily. Ten publications have featured his op-eds. For a full bio see: www.ScottCleland.com.

If this guy was in charge of broadband policy during the Bush administration, it’s no wonder the US has the slowest broadband in the industrialized world.

1) “Physics”: Specious argument. Electricity could be delivered by batteries to the home, by solar power, by musk ox on treadmill. Water could be driven to the home, and sewage tanked away from it (or processed on site). Sure, some of these are more effective than others.

But that’s true of broadband as well. Fiber optic is *the* way to deliver ones and zeros to the home efficiently. Metal wires are an inferior substitute. Wireless is doubly inferior. The reason the broadband providers don’t is because they’d rather suck every last dollar they can out of the lines they put down twenty years ago.

2) “Digital”: Not even sure what the hell you’re talking about here. Seems like you’re just repeating the point you made in the “Physics” section.

3) “Economics”: The fact that the cost of “digital equipment” is falling actually works to the advantage of the current duopoly. Why? Because an ever-increasing share of the cost of starting a competitor is the cost of laying the wires. In a “free market” no new entrant into the market can compete with “we paid for the cost of infrastructure decades ago, so we can drop prices until you can’t compete.”

You’ve already argued that wireless is a legitimate competitor to the Cable/DSL duopoly. It’s not. Do the math. The 7GB/month data plan your telco is charging you $50/month for? You could push that much data through a 100Mbps fiber optic connection in literally a couple of minutes. Speed vs. mobility is a legitimate trade-off. Pretending that they’re remotely the same products is just this side of an outright lie.

4) “Choice”: The surveys say that 85% of Americans have zero, one, or two wired options. Hence, I keep using the word “duopoly.” Most people have the choice between one DSL provider, one cable provider, and zero fiber providers. And as I said before, wireless data plans are junk. Having your cell phone as your primary Internet source is only fine if you barely use the Internet.

5) “Competition”: You’re just repeating what you said under “Choice.” Why the desperate need to pad the article out to ten? The term “broadband” falsely conflates a litany of different products. Wireless and satellite are jokes. In the case of satellite, upload speeds are hardly faster than dial-up.

Fiber optic is in a class all by itself. If satellite Internet is “broadband,” then there ought to be a whole other word for fiber. “Super-mega-million-zippyband,” maybe. If you are fortunate enough to have broadband, you’ve got more bandwidth at your disposal than you would if you signed up for every single other option available in your area, twenty times over.

And most people can’t get it, because the natural duopoly of phone/cable makes it difficult to deploy fiber as anything other than a public utility with a twenty year payback.

6) “Private investment”: The existence of private capital chasing after broadband isn’t proof that there’s no natural monopoly. Private capital is buying up water and electricity facilities left and right in the third world. Make no mistake: they’re chasing broadband because they know it’s a natural monopoly, and they want to be the monopolists.

7) “Change”: Hogwash. Broadband doesn’t change rapidly at the infrastructure level. Fiber optics haven’t changed much in the last thirty years. TCP/IP changes with glacial slowness. The services running atop the infrastructure are forever changing, but broadband offerings can usually be characterized entirely by two numbers: download and upload speeds.

8) “Speed”: “Speed: Public utilities like electricity, water and gas, are designed to deliver a set and uniform delivery speed to everyone that is never expected to change. Competitive broadband networks are all about constantly improving the speed of delivery and offering the choice of differentiated speeds by price based on consumers’ ever-changing needs, wants and means.”

You’ve clearly never been a customer of Comcast.

9) “Prioritization:” You minimize the difficulties faced by other utilities. Water utilities have to have sprawling intrusion detection and networks of toxin sensors to prevent accidental or malicious contamination, for example.

Further, you exaggerate the difficulty of preventing network congestion. You can’t perform deep packet inspection without significantly slowing the flow of data. Usually when you’re faced with network congestion or quality-of-service, the simplest solution is always the most effective: invest in infrastructure to raise the network’s capacity. Most spam and virus filtering is done by e-mail providers who are separate from the Internet providers anyhow. Oh, and once you’ve got fiber installed, increasing capacity is a cinch. Just swap out the machines on each end of the pipe with something faster.

10) “Common carrier”: No, common carrier regulations are not “obsolete.” Well, I suppose to anyone blogging at Heartland, regulation itself is an antiquated concept. But I think the instances of declassification that you cite are a symptom of a right-wing push toward deregulation, not an inadequate or antiquated regulatory system.

Many aspects of ISP operations already conform to common carrier standards (safe harbor provisions being but one example). Hell, even Disneyland has been found to be a “common carrier” for some purposes (California’s common-carrier laws are pretty broad). The idea that ISPs ought to accept all customers according to a public fee service rather than discriminating between customers isn’t an unreasonable one. If “common carrier” has fallen out of favor, is it a sign of a problem with that model of regulation? Or just proof of corporate power over legislators?